No Landing Yet: Consumers Refuse to Give Up, Government Spending Jumps, Inventories Rise toward Trend, Trade Deficit Less Horrible

Annual GDP for 2022 rose at average pre-pandemic rate, strong second half, weak first half. “Freak event” that sunk Q1 GDP completely unwound.

By Wolf Richter for WOLF STREET.

GDP, not adjusted for inflation and expressed in today’s dollars (“nominal” GDP), jumped by a seasonally adjusted annual rate of 6.5% in Q4, from Q3, to $26.1 trillion, according to the Bureau of Economic Analysis today.

GDP, adjusted for inflation and expressed in 2012 dollars, rose by a seasonally adjusted annual rate of 2.9% in Q4 from Q3, after the 3.2% gain in the third quarter, and after two quarters of declines in the first half. The drop in Q1 had largely been caused by the “freak event,” as I called it, of the exploding trade deficit that has now been more than unwound (the chart is cropped at +9% and at -9% to cut off the 30% swings in 2020):

The increase in Q4 inflation-adjusted GDP was driven by:

  • Consumer spending. Americans just refuse to give up. They got big wage increases and many were still flush with money, and they managed to outspend inflation, no problem.
  • Improvement of the trade deficit to less horrible levels.
  • Government investment and consumption.
  • Investment in private inventories, which are reverting to trend, after the shortages.

A big negative was residential fixed investment, which continued to plunge. Investment in fixed equipment also fell.

“Real” GDP, adjusted for inflation by expressing it in 2012 dollars, rose to a record seasonally adjusted annual rate of $20.02 trillion:

Annual “real” GDP growth in 2022, at 2.1%, was right in line with the average before the pandemic:

Consumer spending on goods and services, adjusted for inflation, grew by an annual rate of 2.1% in Q4, roughly the same pace of growth as in the prior two quarters. Spending on goods and services, both, increased.

The share of consumer spending as a percent of GDP, at 70.6%, was still above the pre-pandemic range of 68% to 69%, as other parts of the economy, particularly the trade deficit – in part caused by consumer spending on goods – haven’t recovered to pre-pandemic levels.

Government consumption and investment rose by 3.7% (adjusted for inflation and annualized), the second quarter in a row of increases, after five quarters in a row of declines.

Federal government: +6.2%, second quarter in a row of increases, after five quarters in a row of declines:

  • National defense: +2.4%.
  • Nondefense: +11.2%.

State and local government: +2.3%, second quarter in a row of increases, after three quarters in a row of declines.

Government consumption and investment does not include transfer payments and other direct payments to consumers (stimulus payments, unemployment payments, Social Security payments, etc.), which are counted in GDP when consumers and businesses spend or invest these payments from the government.

Gross private domestic investment rose by 1.4% (adjusted for inflation, annualized), after the plunges in the prior two quarters (-9.6% and -14.1%):

  • Nonresidential fixed investments: +0.7%:
    • Structures: +0.4%.
    • Equipment: -3.7%.
    • Intellectual property products (software, etc.): +5.3%, 10th big increase in a row.
  • Residential fixed investment: -26.7%, third plunge in a row, after smaller drops before.

The Trade Deficit (“net exports”) in goods & services improved by $36 billion, third month in a row of sharp bounce-backs from the catastrophic level in Q1 (2012 dollars, annualized).

Exports add to GDP, imports subtract from GDP. “Net Exports” (exports minus imports) have been dragging down GDP for decades, as imports worsened year after year in leaps and bounds, while exports only increased a little. Corporate America went on an all-out effort to “globalize” production to other countries. Plus, in recent years, overseas vendors have been able to sell directly to US consumers via internet platforms.

The catastrophic trade deficit during the pandemic was caused by consumers buying a historic amount of goods, a lot of which were imported, or their components were imported.

In Q4, exports fell by 1.3% while imports fell much more, by 4.6% from a larger base:

Enjoy reading WOLF STREET and want to support it? You can donate. I appreciate it immensely. Click on the beer and iced-tea mug to find out how:

Would you like to be notified via email when WOLF STREET publishes a new article? Sign up here.

  114 comments for “No Landing Yet: Consumers Refuse to Give Up, Government Spending Jumps, Inventories Rise toward Trend, Trade Deficit Less Horrible

  1. BRRRUUUUPPP says:

    Great Article. If I’m reading this properly, more growth, potential more inflation = Jerome Powell increases fed funds rate……brrrruuppp 25 bps!

  2. Cas127 says:

    That gvt consumption expenditure chart is a meal in itself, if it is as straightforward as it seems to be.

    Does it include entitlement spending? (my intuitive sense of macro spending in trillions is wonky today).

    I know that the Defense budget was about $800 billion, and that the Three Horsemen of the Entitlement Apocalypse (Social Security, Medicare, and Medicaid) are in the same elephantine neighborhood (getting us close to $3.4 T *all by themselves*) and then there are the Pandemic nails-in-the-coffin spending bills.

    So, in some ways, the chart seems low for current G spending (if entitlements included)…but like I said, my spidey-sense of scale is malfunctioning today (ditto Googling skills)

    • Wolf Richter says:

      “Does it include entitlement spending?”

      Nope. As I said in the article: “Government consumption and investment does not include transfer payments and other direct payments to consumers (stimulus payments, unemployment payments, Social Security payments, etc.), which are counted in GDP when consumers and businesses spend or invest these payments from the government.”

      • elbowwilham says:

        So according to these figures, the Gov can send 100k to each citizen and as long as they outspend the rate of inflation, the GDP will continue to rise?
        That seems wonky to me.

  3. Nissanfan says:

    There are simply no brakes on this vehicle. Hopefully we don’t run into the wall, because that will be far from “soft landing”.

    • Old school says:

      If you look at margin accounts people usually leverage up til the bust occurs and then they save during the bust. I assume consumers display similar behavior. It makes sense on an emotional level but you get more for your money by spending in a bust and probably shouldn’t get so leveraged up during the go-go years.

    • Cytotoxic says:

      The drop in investment augurs a recession is coming. Investment is the all-mother of growth. When business investment fell in 2018 it was the end of the party we’d had since late 2015.

      • Wolf Richter says:

        Consumers are the mother of all growth in a consumption-based economy. Their spending = 70.6% of GDP.

        • Concerned Citizen says:

          Of that 70.6%, there are about $3T in government transfers. Although less than the COVID burst, that three trillion is still a great deal of government money feeding the economy.

    • Kernburn says:

      I’m beginning to believe that the more you hear the phrase “soft landing” the more you can be assured that there will actually not be one. It was a commonly-used phrase in 2007 as well

  4. Leo says:

    So I wonder why is J-Pow slowing down rate hikes.

    • Wolf Richter says:

      Because it’s time to slow them down. That makes sense to me. It’s not time to pause, but it’s time to hike less fast.

      Rates are already a lot higher than anyone expected a year ago. It takes a while for rates to bite demand and employment (the infamous “long and variable lags” between changes in monetary policy and the reaction in inflation).

      • gametv says:

        My opinion is that the a slowdown in the pace of interest rates at this point will extend how long they need to keep interest rates elevated and thereby, actually lead to a much worse situation in 2-3 years from now.

        In the 70’s we had inflation spike, drop way down and then enter a second inflationary peak that was higher than the first. Maybe that was a result of bad policy, but I think the Fed needs to consider that inflation fighting should always be the first job.

        I personally think that the deflationary trends of outsourcing to China and the price discovery of internet competition has run its course and the future of prices is going to be higher for longer.

        There is still a huge 8 trillion dollar problem sitting on the Fed balance sheet that needs to be unwound.

        I think it would have been much smarter if instead of raising interest rates to stem inflation, the Fed had begun to sell off the balance sheet at the lower interest rates. That could have had the same effect of tightening monetary policy and driving interest rates higher, but it would have allowed them to liquidate more of the balance sheet without losses (and it could have gotten the balance down lower, much faster).

        • Finster says:

          Agree. The easing of “financial conditions” (spiking stock prices) is a renewed inflationary impulse going into the pipeline. Unless soon reversed, expect the progress in moderating consumer price inflation to grind to a halt.

        • Bernhard Weninger says:

          The reason why Inflation in tbe late 70ties spiked again was because when the Fed hiked the first time they induced a recession and inflation did indeed begin to fall and the Fed cut rates. But Real Rates in the long end were still negative as they are today. It took what 18 months and inflation spiked again. As long as you have negative real long rates inflation will go back up with a lag. Today we have a strong economy, still negative real rates and to slow down rate increases at this point is too soon. We need to get to real positive rates. And we are a long way from that. For one tbe Fed needs to normalise its balance sheet pronto to get to positive rates which the Fed spent trillions in government bond purchasss on to mail them down low. You would have to raise short Rates sky high to finally get a positive long Real Rate without selling the bond holdings.

      • Phoenix_Ikki says:

        Well, it will be interesting tomorrow for the market for sure. Either it will tank if Pow Pow come out undeniably hawkish or leave it more ambiguous, so the market can try to hallucinate between the lines and take it to the moon..

        Judging by bitcoin action lately, so many people are ready to jump back on the hype rocket and now with MSM going around telling people bear market is over, new age of Bull is in, inflation is over…etc…I can see tomorrow being a big leg up, too bad I am not confident enough to gamble on my prediction.

        • Pea Sea says:

          Tomorrow? What’s Powell doing tomorrow that would move markets?

        • Phoenix_Ikki says:

          Sorry, I meant to state how Pow Pow will react after tomorrow’s data. You know that market will take any silver lining and launch it to the moon..

          8:30 am Real disposable incomes (SAAR) Dec.
          8:30 am Real consumer spending (SAAR) Dec.
          8:30 am PCE price index Dec.
          8:30 am Core PCE price index Dec.
          8:30 am PCE price index, year-over-year Dec.
          8:30 am Core PCE price index, year-over-year Dec.

        • rojogrande says:


          I think Powell is in the blackout period ahead of next week’s meeting. We’ll have to wait until after the meeting to see his reaction to the data.

        • 91B20 1stCav (AUS) says:

          PI – “hallucinating between the lines” the surest ongoing marker of CH (…made me spray my coffee. When, oh when will I learn to set down my cuppa when frequenting the comments here in Wolf’s fine establishment?).

          may we all find a better day .

      • Pea Sea says:

        A slowdown will likely just cause the already roaring markets to really take off. Stocks and worthless crypto are on fire. Housing–in real time, not in the laggy data–is very visibly rallying, with bidding wars beginning to return in some metros and stale listings being snapped up everywhere.

        Conditions are not sufficiently restrictive. A slowdown and pause will amount to the Fed saying “…and they never will be.”

        • Arya Stark says:


        • Depth Charge says:

          The FED has created a speculative orgy that continues unabated. Expecting the arsonist to extinguish the fire is like expecting to find all of your chickens healthy and well-rested with the fox guarding the hen house. It’s delusional.

          The FED won. They basically destroyed the US for themselves and their rich buddies. It’s all over for the rest of us, some just don’t realize it. It’s eating its way up the food chain. I haven’t found a single person who believes inflation is coming down at all. All of them cite worsening financial conditions for their personal balance sheets.

          But we’ve got speculators speculatin’, because dontcha’ know that’s what’s important in life – running up the prices of things to take a cut at the expense of the real producers?

        • Phoenix_Ikki says:

          Yup, you’re probably right….Never bet on the stupidity of the masses…sounds like a great deal alright, 6% mortgage and prices 20%+ more than when rates were 2%…FOMO and stupidity are identical twins at this point.

          “Housing–in real time, not in the laggy data–is very visibly rallying, with bidding wars beginning to return in some metros and stale listings being snapped up everywhere.”

        • Cytotoxic says:

          “in real time, not in the laggy data”

          WTF does this mean? I am not interested in ‘real time’ anecdotes I am interested in data even if laggy, and the data are clear that housing is down-spiking.

        • Wolf Richter says:

          Pea Sea,

          Take a deep breath and look at a two-year chart of all the things you mentioned. And note the up-and-down moves. They’re normal in a situation like this. Every few months we go through: last summer, last fall, and now.

    • Politicians says:

      To appease the politicians – J-Pow is getting tons of heat on interest rates and 2024 is around the corner

      • rojogrande says:

        Smaller rate increases will only appease politicians if inflation actually keeps coming down towards 2%. I think high inflation would be a bigger problem for politicians in 2024 than higher interest rates.

  5. Dr Duration says:

    I’m interested in the concept of recession hesitation versus FOMO.

    It’s fascinating that like a light switch, the economic narrative can flip instantaneously from one extreme to another, as if lemmings are being herded (like cats) off a cliff.

    Is certainty necessary in any of this delusional hallucination or do we simply embrace chaos and let the gods take our ship on another raid to a far off land, where enormous treasure is waiting for us?

  6. Bs ini says:

    Inflation has been steadily dropping each month last couple of months. Tomorrow PCE and projected to drop again . Fed does not need to create more problems than already created . Patience is needed at this time. Love to see the improvement of exports but I don’t see a return to 2019 levels maybe no exports to China ?

    • Einhal says:

      Inflation has not been steadily dropping. It has in goods, but it’s surged in services. And only an adjustment to health care inputs along with dropping oil prices (which has reversed) is what makes it look like it’s dropping.

      Inflation is nowhere near under control, regardless of what the Wall Street sycophants tell you.

    • RH says:

      The Fed has grown the USA’s M2 so much that inflation inevitably results. However, China’s ADMITTED M2 is more that the combined M2 of the US plus the M2 of Japan (all in dollar terms) due to the CCP massive over printing of yuan and its GDP (even as overstated as it has been for years) is nowhere near even the US GDP alone.

      Do not get me started on the CCP’s printing of more that one yuan with the same serial number or hapless manipulation of financial data. There truly may be few US exports to China in future years as China’s foreign-run factories move to other countries and the increasing, resulting decrease of China GDP triggers hyperinflation and even more economic collapse in China. (To avoid rapid economic collapse this year, the CCP is actually building more unsustainable high speed trains that few can afford to ride, etc., which will add to its gigantic mega-herds of white elephants. LOL)

      I predict that will happen this year or in 2024, so any major investors in China, take yoga classes! That way you can kiss something good bye then. LOL

  7. Brewski says:

    REAL interest remain negative.

    Until interest rates get real, the Fed should be tightening.

    What recession?



  8. JimBob says:

    Well let’s look at it his way. I keep reading that sales of durable goods is down, and spending on services is taking off like a rocket.

    Are all these people paying cash or using their credit cards? Doesn’t make sense to run up you credit card on something you immediately consume (ie: dinner / spa / vacation / plays / concerts / etc…).
    Makes you feel good (instant gratification) but 3-6 months from now you’ll be wondering what the hell did I spend all my money on?

    Don’t forget as more people default on their credit cards, Card companies will raise the rates they charge, digging a deeper hole for the credit card holders.

    The people who paid way too much for their homes (and those who just live next door to the over spenders) are in for a big surprise when homes are reassessed and property taxes skyrocket. Especially if you’re in a blue city – Chicago.

    Your local governments (school dist/City Gov/Park Dist) won’t have to ask for a rate hike (the % they can charge) the % they charge will just be applied to a higher assessed value. They can just go along for the ride, can’t they. God knows they certainly aren’t going to reduce their % of the pie.

    Then as “gametv” mentioned “There is still a huge 8 trillion dollar problem sitting on the Fed balance sheet that needs to be unwound”

    Why when the average Joe has to cut spending to survive, the government can continue to spend like there is no tomorrow?

    PS Wolf, Love your daily emails…..

    • Wolf Richter says:

      In terms of your first question: People use their credit cards has a payment device. So credit card data tracks payments, NOT DEBT. Americans ran about $5 trillion through their credit cards in 2022. Only a small amount of that doesn’t get paid off every month and becomes interest-bearing debt.

      • FastEddie says:

        To amplify Wolf’s point, If you can afford to always pay in full, it’s crazy not to use a credit (not debit) card. Not only do you have zero liability and an easy way to deal with a dispute, the cash back on many cards is jaw-dropping. Wal*Mart MC gives 5% back on WM purchases. A Costco Visa gives 4% on gas. Amazon knocks 5% of AMZN purchases (including Whole Foods). Even a “run of the mill” card typically will rebate 1% to 1.5% on most purchases. And virtually any transaction can be paid with a card (the only broad exception is utility and government payments).

        The term in the card business for individuals who charge and pay in full each month: DEADBEATS.

        • Old school says:

          Maybe. Maybe not. Unless it has changed people spend more when using a credit card than when pulling cash out of their wallet and making the purchase. Plus all your purchasing information is being pimped out. Maybe it’s not worth the cash back.

        • Natron says:

          Deadbeats huh? Lol I’m happy to be one. My understanding is they charge the merchant about 3% for the convenience of a card. I probably pay that even if I pay cash these days too.

          As Wolf pointed out above, $5T in charges last year has them sucking $150B minus whatever liabilities they accrue out our collective pockets for what seems very little effort.

          Vampire squid much?

        • Publius says:

          Keep in mind that some businesses charge more for credit card transactions, gas stations being an example.

        • Harry Houndstooth says:

          Fast Eddie-
          You wouldn’t happen to own a bar in Alton, Illinois (Bon Air), would you?

          The Walmart Mastercard pays 5% back only at and you have to use the Walmart Pay phone app. This introductory offer is only good for 12 months. The card only pays 2% back at Walmart stores.

          The Amazon card only pays back 3% at Amazon and Whole Foods.

      • Seen it all before, Bob says:

        I use my credit card that pays back 1%-5% on all purchases.
        I put EVERYTHING that I can on the card. Even utility, insurance, etc.

        I received back about $1000 for 2022.

        That tells me 2 things.

        1) It would be foolish to pay with cash and walk away from $1000. Now it is becoming more important since I found a bank that is paying 3.5% for a savings account. It doesn’t make sense to carry too much cash. Using a credit card also floats the payment for up to a month. We also had a couple of hassle free returns for items that did not arrive.
        2) I need to look closer at what I am buying. $1000 probably means I’m spending too much.

  9. Fed Up says:

    I don’t agree that inflation is slowing and that the fed should slow rates hikes. Housing is still way too expensive, insurance through the roof, food at restaurants prohibitive. We need a reset that should have happened in 2008. Corrupt country.

    • Arya Stark says:

      Bloomberg has a piece out from Simon White saying rate cuts in 2023 are still on the table. Not saying that will happen but that should be good for a % or 2 on the ES.

      • American Dream says:

        The only way they cut rates is in a hard landing scenario. Every bullish market narrative is delusional. The pain of this year is either renewed inflation pressures (bonds, stocks, and real estate continue to get hit) or high rates barreling into global recession (stocks and real estate get hit)

        • Augustus Frost says:

          Or both your scenarios combined. It’s not necessarily one or the other.

  10. Misenome says:

    Government deficit spending is inflationary and was the main kind of debt monetized by the Federal Reserve. I don’t expect to see any real collapse in inflation until interest rates cause a pullback in government spending. Inflation will ebb and flow but we’re still at “emergency” levels of government spending.

    • Z33 says:

      Well, they would need the debt ceiling to be raised to keep spending. And this may be the time politicians decide to push their luck too far and actually not raise it lol. It’s assumed it will be raised every time, but nothing at this point will surprise me.

      • josap says:

        Raising the debt ceiling is to pay for the money already spent by Congress in the budget passed at the end of last year. They put it on the government charge card, now they have to make the payment.

  11. Swamp Creature says:

    The Fed is now in the dugout and is not in the ballgame. There’s not much more they can do. They’ve already wrecked the housing industry, and we are heading for a bad recession to unwind all the malinvestment that was done over the past 14 years. Let’s see how the Republicans handle the debt ceiling battle. If they cave in its game over. I see the dollar collapsing 20% to 30%. Wells Fargo will be putting a $100 bill button option on their ATM machine screen options. The only reason they haven’t done it already is that they like to have depositors visit the ATM machines more often so they peddle their WOKE BS and advertising.

    • jon says:

      Dollar already collapsed big time in last 20 years or so if you take into account what can dollar buy today in comparison with what it could buy 20 years back.

      • grimp says:

        I’m sure that today’s $10 Big Mac is vastly superior to the $1 Big Mac from 20 years ago.

        • josap says:

          Still cardboard crap with some catsup and relish. Lots of added salt as well.

        • Publius says:

          The ‘hedonic’ adjustment being the increased satisfaction in eating a burger that, while otherwise the same, costs more.

        • 91B20 1stCav (AUS) says:

          Publius – in the olden days this was referred to as ‘ ostentation’. Who woulda thought we average mooks can join that club simply by dining at MickeyD’s?

          may we all find a better day.

        • Flea says:

          In high school could get hamburger,fries small coke for a 1$ =. 1975

        • NBay says:

          Does this mean kids can now sit by the drive thru and yell, “SHOWOFFS”, at people and it will piss them off? (good 8th grade entertainment from my era, and less risky than throwing various things at them)

          Actually I think “stupid” is more accurate….but that’s the just Biologist in me.

          Come to think of it, would either make me “woke”? (See other comment)

    • NBay says:

      No comment on your several points situational take post, but I just wanted to know if this is what “woke” really means?

      I used a recent definition provided by a Republican with likely Presidential aspirations as being the most likely correct one.
      I’m still having trouble understanding this word, and baffled about how “woking” is being done at an ATM. Thanks.

      Jan 20, 2023 — Woke is defined by the DeSantis administration as “the belief there are systemic injustices in American society and the need to address them,” …

      Also, as I have said before, you are NOT a “swamp creature”. You just live nearer to K St than most. I grew up around REAL swamp creatures and my Uncle was a REALLY BIG one, as were his friends.

  12. breamrod says:

    oil prices seem to be going back up. That’s not going to help the inflation rate. Powell may slow the hikes but he’s far from done.

  13. Michael Engel says:

    1) Annual Real GDP : the move from 2020 low to 2021 high was the highest on the chart : 9%. In order to be in a 1% recession GDP must retrace : 7%/9% of the move up. GDP is not likely to exceed 6%, but the 2020 low might be breached.
    2) The Dow : if Feb high/Mar low 2020 is X, the Dow might retrace X from
    Jan 2022 low.
    3) SPX : if Feb high/Mar low 2020 low is X, SPX might retrace 2X from Jan 2022 high.
    4) The biggest spenders are the upper middle class.
    5) NDX : if Feb high/Mar low 2020 is X, NDX already retrace 2X, but that’s not good enough. When NDX retrace 4X the spending will stop and the recession be deeper than in 2020, because the upper middle class are spaced out, detached from reality.

  14. bulfinch says:

    We can shop our way out of any damn’d thing. Todays Americans are terrifically solvent, mood stabilized and unified around a collective delusion of bottomlessness. Kites have never been so high.

    As for bitcoin: has there ever been a greater temptation known to man than that of alchemy?

    America: you got this. Now go buy a Dyson and some Nikes.

    • Apple says:

      I think of crypto like religions. Some have more faithful followers than others, but they are all based belief.

      • Phoenix_Ikki says:

        Generous of you to call that a religion…kind of like calling Scientology a religion

      • Augustus Frost says:

        Every person’s worldview includes belief without proof, of something. Those who believe otherwise just do not know it.

        • NBay says:

          Like the sun is going to come up tomorrow?
          Guilty as charged.
          Not a hell of a lot more “beliefs”, though….I’m totally mystified by the whole damn show….gets worse as I get older, too.

    • DanR says:

      I like that expression “you got this” in that it suggests low analysis and high confidence.

    • American Dream says:

      No doubt this is spot on. Americans will spend until they are completely broke …I guess all those advertising dollars companies spend does pay off lol.

      People will be really sour though if/when gas gets back up into the 4’s

      If people stay employed and are getting wages increased it draws this out for some time

      • Augustus Frost says:

        The US public will not voluntarily reduce their living standards “noticeably” for any length of time. A noticeable percentage of the country believes everyone has a birthright to minimum living standards at someone else’s expense.

        When the asset mania bursts for real and credit standards are actually somewhat “tight”, it won’t just be the rich who will be expected to pay.

    • NBay says:

      Alchemy comment made me think of a drug called “Theriac”, that was very expensive and always had a carefully guarded formula that was highly prized and sought after for almost 2000 years.

  15. Depth Charge says:

    It’s a rich person’s party. The poor and working classes were not invited.

    • dougzero says:

      Yes, the poor and working classes(there is overlap in these two sets) are at the party as staff, and afterwards to clean up.

      • Augustus Frost says:

        The vast majority of the US population are one of the two, many of them not knowing it while having “white collar” jobs. They think they are middle class because most Americans have been conditioned to believe it.

        • bulfinch says:

          Nearly everyone I know is working class. If you work for a living you are working class. The color of your harness is propaganda.

      • Gooberville Smack says:

        You can tell the poor and working staff by the masks.

  16. info says:

    QT is not high enough to counteract government spending and consumer spending. Perhaps it needs to rise.

    • Old school says:

      Give things a little more time. If you assume it takes about a year for Fed policy to work its way through then the tighter policy hasn’t gotten out into the real economy yet.

      • Depth Charge says:

        Except I don’t believe that. If it were true, then it would have taken that long when they slammed rates to zero and printed trillions. It’s all cover so they can “pause” while inflation slow-boils the have-nots to death.

  17. America Strong says:

    “People have habits, people have plans that they don’t change”. Agree with Michael Engel comments that the upper middle class have the most dry power left to stoke the fire. There is still a lot of itches to scratch post pandemic, which leads to higher services inflation. BNPL or Tap or Swipe. Americans know how to spend money💰. $5500 gets you the cheapest ticket to the Super Bowl.

  18. Michael Engel says:

    1) The European leaders banged their heads, while playing on VF, for fun. They became zombies.
    2) US dollar is fading in a low slog down. There is a Lazer trending up between Aug 2018 and Apr 2020 , possibly aiming at the next high. If DXY pop from 100 to 130/150 the spending will stop.
    3) After a lower high, below 1985 high, DXY might reach/breach the 2008 low.
    4) During the high inflation the Fed might backup the dollar with TR Yellowstone and Grand Canyon National Parks, imitating Dr Schlecht from 100Y ago.
    5) The upper middle class might move to hiking trails, living in backpacking tents, for safety.

  19. David Hall says:

    The December inflation rate is 6.5%. The “real” GDP slowed from 3.2% to 2.9%, Q3 2022 to Q4 2022.

    “The biggest gains from net domestic migration last year were in Florida (318,855), Texas (230,961) and North Carolina (99,796), while the biggest losses were in California (-343,230), New York (-299,557) and Illinois (-141,656).” – Dec 22, 2022

  20. Concerned Citizen says:

    Someone, maybe Wolf would be so kind as to comment, please explain how the the government’s debt projections which range from ~$36+T (CBO) to ~$44T (other economists) by the year 2027 can be supported without a massive QE program as the bond market would struggle to support this level of spending without the Fed and or possibly a Fed induced bout of inflation to align debt to income.

    I look forward to anyone’s insight here.

    • Wolf Richter says:

      LOL. Look at the yields!!!! Right now, the 10-year yield is 3.55%. This is RIDICULOUSLY LOW. Low yields like this mean RIDICULOUSLY HIGH DEMAND for Treasuries. Yields need to move higher, and the Fed wants them to move higher, but because there is so much demand for Treasuries, yields are stuck at this low level.

      Yield solves ALL demand problems. If there is not enough demand at a current yield, then the yield rises until there is enough demand. If the yield rises high enough due to lack of demand, I will buy some 10-year Treasuries and add to that demand.

      There will always be enough demand for Treasuries, but maybe at a higher yield. And the yield SHOULD BE HIGHER, but isn’t yet.

      • Concerned Citizen says:

        I am not trying to be pedantic but if yield stays low, what does that say about the US economy. i.e. people happy with 3.55% and believing that is a good return for tying up their money for 10-years, can’t they do better somewhere else

        Is this low yield not signaling the economy is in trouble longer term?

        • boikin says:

          This is my exact question, who is buying all of these long dated treasuries? I just wish someone could explain the argument. The only thing I can think of is people blindly following some balanced portfolio strategy, annuity plans that guarantee some rate of return, and some other institutions that need them for reasons other then yields. Either way it is probably a sign there is so much money sloshing around that locking your money up for 30 years for 3.6% seems like a good idea.

        • Old Ghotivst says:

          CC, you are not being “pedantic”.

          The “real” US economy, is concerned with getting their money back. With Fed Gov debt, they know they will at least get their dollars back (regardless of what the crazies in the Republican Party do). You can’t say that about corporate or other private debt.

          What those nominal dollars will buy when they get them back is another issue.

        • Wolf Richter says:

          Concerned Citizen,

          Low yields = high bond prices. The reason is consensual hallucination, same as with high stock prices, etc.

          Stock and bond prices have plunged from a year ago, but have recently tick up a little.

          It says zero about the economy. If markets are worried about the economy, stock prices should go down, and bond prices should go up. But they both went up. Which is stupid.

          If it says anything, it’s about the level of consensual hallucination left in the markets. This will take a long time to work off.

          BTW, the 10-year yield has bounced off by about 20 basis points from the Jan 18 low.

        • Petunia says:


          The buyers of treasuries now are mostly debtors of US dollar denominated debt. They buy the treasuries as a funding mechanism to guarantee they have the dollars, to pay back the debt, when their bonds mature. They do this to maintain their credit worthiness and not get caught short handed in the fx market when they need the dollars. Not being able to pay back in dollars would constitute a default, no matter how much other currency they hold. These buyers are not investors.

        • boikin says:

          Petunia, this can not be completely true if this was the case yields would never change since yields are of no concern to these buyers and it would not matter if the Fed bought all long date treasuries as none the buyers would care what the rates were.

        • Petunia says:


          Rates are pushed down by these buyers because they pay more and don’t care about the rate. They just want access to a nominal amount for their sinking fund.

  21. AV8R says:

    Debt is good if you haven’t got the memo. Maybe its time for another margin debt installment Wolf.

  22. Tony says:

    A lot of people seem to be taken off guard with this stock market rally. One thing to keep in mind is that the stock market can be disconnected from reality on the ground. In fact, stock markets can soar during inflationary periods, even though in real terms the value usually goes down when the currency depreciates.
    As example is Venezuela— their stock market soared for a time as their currency was crashing. So they became poorer despite the stock market gains.

    • nicko2 says:

      Very good point. The stock market here in Egypt has performed well in local currency terms…..of course, the local currency devalued 50% vs. The dollar. Oops!

    • Swamp Creature says:

      Same thing happened in the Weimer Republic. The stock market was the only game in town.

  23. THE NUMBERS - CPI Change says:

    GOAT WOLF, Excited to get your analysis on all the numbers. Would you be able to comment on the change in the CPI calculation that will automatically create a mathematical decline YoY.

    8:30 am Real disposable incomes (SAAR) Dec.
    8:30 am Real consumer spending (SAAR) Dec.
    8:30 am PCE price index Dec.
    8:30 am Core PCE price index Dec.
    8:30 am PCE price index, year-over-year Dec.
    8:30 am Core PCE price index, year-over-year Dec

  24. Michael Engel says:

    If we lose Cieva and Odetsa DXY will become worthless. The yield will pop, pop, and pop from higher highs to higher highs…

  25. Michael Engel says:

    U never know : we might lose other places instead, or on top of Cieva…

  26. Dr Duration says:

    As people digest the latest GDP tea leaves floating around in the big teacup, or even finding comfort in Tesla profit margins going down at a slower rate, or the narrative of housing markets reignited, it’s probably not a bad idea to ponder the tea leaves swirling around in the Intel ice tea glass:

    Intel’s Q4 revenues fell 32% vs. the prior year, the largest YoY decline in company history

    Probably nothing

  27. libdis says:

    This is anecdotal, but an interesting local indicator. My home depot in Tampa for years has had “helpers” mulling around looking for work. Into the pandemic and up until, Id say, December there were literally zero except for the few druggies not looking for work but a handout.

    Yesterday I went and were easily a couple dozen, maybe more, it was eye opening.

    So, either construction employment is slowing here big time and not showing yet, or Texas is shipping it’s migrants to my Home Depot…..

  28. Dr Duration says:

    One final GDP tidbit I noticed:

    The increase in
    housing primarily reflected data on housing completions from the Census Bureau.

    Completions, suggests that construction is still contributing to inflation, which connects to the ideas that construction labor is strong and that the employment rate isn’t feeling any Fed restriction.

    With PCE in, I’m thinking a nice Fed shock is necessary to stomp on excessive inflation behavior. Go for it Powell!

  29. Nate says:

    It’s like the sky isn’t falling, or something. So weird.

    Hugh, so all those folks shilling gold, bitcoin, or bullets because of the incoming financial collapse because of the Antifa Deep State were wrong?? Next you’ll tell me is 99% of the tweets are dumb.

  30. dang says:

    GDP, not adjusted for inflation and expressed in today’s dollars (“nominal” GDP), jumped by a seasonally adjusted annual rate of 6.5% in Q4, from Q3, to $26.1 trillion, according to the Bureau of Economic Analysis today.

    Which also explains the preternatural scenario of the post-QE and covid macroeconomic landscape has shaped.

    Crypto is rallying even as the probability that it may turn into worthless script is soaring.

    The stock market is selling shares at an increasing price that, historically, portends an incipient crash.

    Long term bonds don’t appear to be worth the paper they’re written on.

    Is that what’s bothering you, Bunky.

    • dang says:

      A reference to a vaudeville radio program routine that was recorded on a 78 rpm system that captured that moment in history well.

      Your graph on net exports, indicates that the trade deficit has doubled since 2020. Decreasing from $800 MM per year to $1500 MM. Which is a huge increase in imports from an already elevated base and is a fundamental part of the story of the de-industrialization of post WW2 society.

      Since net exports is GDP negative the trade deficit reduces GDP growth must be made up by government spending augmenting a dwindling investment by an ungrateful corporate sector.

      So, the GDP grew even while running a trade deficit that accounts for between 5 and 8 % of GDP that has to be made up by a the US government running an equal budget deficit. So not good news to me. It is inflationary.

      Free trade may be expensive after all.

    • dang says:

      Philosophy is a product of a healthy body.

      The BOC is a preview of the upcoming FOMC decision to increase the interest rate by 25 bpts at the FOMC conflab next week.

      Canada is a similar culture to the average American and therefore, they’re reaction to an unpopular announcement is indicative of what, statistically supports a prediction of the reaction of the average American. I’m sorry but that is what the evidence suggests.

      • dang says:

        Philosophy is a product of a healthy body.

        Always a tendency to play devils advocate.

        I’m well aware that everyone has a philosophy, the balance between rules and reality.

        Oh yeah the MM $ of the trade deficit that increased from 800 to 1500 billion, MMM vs MM. The MM description has become a sign of lesser estate.

        • dang says:

          Since I, apparently, have room to run, as far as commenting on the GDP report.

          I thought it showed the yard stick where the money is being spent in a less than candid manner.

          In an insensitive system represented by four components:

          GDP = C + G + E – I

          C= personal consumption expenditures
          G = government expenditures
          E = exports
          I = imports

          It is like a ledger where the arithmetic has to balance. Fudging a swag here and there seems appropriate,

    • dang says:

      The current stock market reminds me of the thrill of the rodeo.

      The bull ride, featuring a herd of brama bulls that were athletes in they’re own right. Not to mention the dipsy doodles who felt compelled, some of whom I grew up with, to mount an animal that weighs 10x what they did.

      In the end, the bull would have won if they hadn’t blown the whistle.

      The analogy that begs to be birthed, the snorting brama bull, powering the stock market to, what the stock market salespersons say is good deal.

      Something that occurred to me today while I watched the computers levitate an improbable Nasdaq rally in the face normalized interest rates and a drop in M2, was the brama bull. The animal spirits are alive and well.

      It is remarkable how fast the narrative went from the Fed doing too little too they’ve gone too far.

  31. Swamp Creature says:

    There is a property just around that corner from me, a new monster home, that has been sitting for weeks. It was listed for over 2 million and they recently dropped the price to 1.9 million. I call it “The listing from hell”. I wonder how the builder feels sitting on a 2 million dollar loan at 15% interest while the property sits vacant, with no foot traffic whatsoever.

  32. Dr Duration says:

    I’m starting to see the soft landing ahead more clearly, it’s totally based on (continual and sustained) softer consumer demand.

Comments are closed.